Superpower India: Slipping The Growth Trajectory

Posted in Finance Articles, Total Reads: 2450
, Published on 04 September 2012

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The day we signed the NPT (Nuclear Non Proliferation Treaty) and the NSG (Nuclear Suppliers Group) agreed to grant India a clean-waiver from its existing rules; it seems we have taken the baton to epitomize the concept of India-the next Superpower of the world. GDP and related analysis got a lot of on-air time, not to mention the increased media and press coverage by the west.

Little did we know what the Pandora’s box had in store for us? In retrospect we now probably realize that we rested our expectations on a faulty edifice, the one that was adulterated with wrong perceptions and jingoism to some extent. Such has been the story of India, just like the dollar euro graph; but constantly declining unless some real quick and effective decisions are taken.

When can a country be termed as economically and otherwise prosperous? Several factors such as Economic condition, Public welfare, Human rights, Liberty, International Relations and resource handling (both human and material) are to be taken into the fore. Few of the concerns relating to the above-mentioned are touched upon in this article.

It is startling to note that 300 million people in India (almost 25% of the population) still don’t have access to electricity. The situation in Tamil Nadu is even worse. With electricity demand touching 11500MW and generation remaining at 7500 MW, the state is reeling under acute power shortage. Key projects like Kundakulam Atomic Power project (7000MW) has been stalled fuelled by frequent protests by nearby villagers and related NGO’s, despite repeated assurances by NPCIL. Though the wounds inflicted by the Fukushima disaster in Japan have not yet healed within nuclear circles; energy security is imperative and the bigger picture needs to be descried as being emphasized by TN chief minister Ms. Jayalalitha.

Not so long ago the westerners used India and China in a same sentence. Have we slipped away a bit or has our adversary performed better? Well, it’s a combination of both. Just to give an example, China and India both face the twin problem of floods and droughts. And while both countries have been mooting for a way to tackle this problem; China has taken the lead with its South-North Water Transfer Project (SNWTP). The SNWTP seeks to alleviate the twin problem of floods in the south and drought in the north of China by transferring water from surplus to scarce river basins.

While India’s river linking project is in the pipeline, China's ambitious $80-billion project to divert waters of southern rivers to the arid north is nearing completion. Being a democratic country, India, unlike China, cannot afford to embark on a politically and environmentally risky project. The cost of the river linking project will cost India somewhere to the tune of $120-billion. However, factoring in of a 400-500 per cent cost overrun involved in large water projects, the final cost will undoubtedly be higher.

Globalization is a phenomenon that cannot be overlooked by India. For the concept to materialize in a smooth manner, there are certain prerequisites that need to be fulfilled. An acceptable level of road and rail infrastructure is one of them. NHAI claims to construct 12 kms of road on a daily basis, it still needs to be escalated to 20 kms a day if we are to complete projects on time. In a bare-all, scathing report India’s leading nuclear scientist,

Anil Kakodkar has directly questioned the ability of railways to ensure the safety of over 18 million passengers who travel by trains everyday. He goes on to say that unless the railways sets into motion an immediate plan that includes advance signaling, safe coaches, anti-collision devices, advance-warning system and strengthening of the tracks as well as laying new ones, the regular train passenger has to travel at his own risk. It is difficult to fathom the fact that the world’s fourth largest employer is slated to be at least 30 years behind in terms of technology when compared with the west.

The economic situation in India has quickly turned into an albatross that is haunting all of us. The graph on the right (GDP YOY) clearly should worry the topmost financial minds of the country. It is exactly mirroring the graph in the way an optimist would have projected the graph to be. With a CAD (Current account Deficit) of 4.3 per cent, alarm bells should be ringing; all through the recent growth period India's CAD has not risen above 1.2 per cent of GDP.

The government seems to be stuck between populism and decision-making. The ghosts of the past; when left opposed the government initiative to go ahead with the NPT in 2008 came back in the form of Mamta Banerjee who kept on opposing reforms after reforms, whether it be FDI in single and multi brand retail or be it the pension reform bill. The inflation has become the kingmaker and has almost resisted every move the government has made to counter it. RBI has exhausted all its options and the hat does not seem to have any more rabbits. CRR has come down to 4.75% at present, though not at the expense of consumer interest cuts. Even at subdued levels of international crude oil prices, India was forced to revise petrol price 15 times in 2 years. And now it stands tall at almost eighty rupees per litre.

There are certain measures that can be taken to help David in his fight against the Goliath. Brand India today is big enough to bargain for more control and autonomy over the matters that concern it directly or indirectly. Not so long ago USA almost bullied UBS (United bank of Switzerland) and Credit Suisse to buying into the information of American nationals having a off-shore account and their Swiss counterparts after having a lot of deliberation obliged and gave them the account information of 2000 American nationals.

Indian nationals believed to have parked about 1.46 $trillion and being one of the main contributors in that sense should be able to yield some pressure in the form of diplomacy and international relations. India as of Dec 2011 has an external debt of 335 $billion. Assuming the consolidated figure including interest to be 400 $billion, we will still be left with 1.06$ trillion.

Just imagine about the wonders this money would do. Anti corruption laws need to be strengthened beyond comprehension. The CVC (central vigilance commission) has to be given more teeth. One simply cannot expect a staff of 299 to keep check of more than 1500 central government departments and ministries. The Whistleblower act, which is in the final stage of drafting, needs to be implemented in a graceful manner. We cannot anymore afford to lose people who give valuable information.

In order to cater to India’s insatiable demand and to sustain its growth agenda; one cannot expect to reduce our crude oil demands and neither do we have the technology and expertise to explore and dig oil rigs to start production on a large scale. So its implications are that in order to maintain our BOP (balance of payment) we need to encourage exports. We can ill-afford to let our grains rot in godowns while 70% of our children under 15 are malnourished.

National food security act can go a long way in reducing this imbalance. We need to replicate models like NREGA (Mahatma Gandhi National Rural Employment Guarantee Act) that has proven to be highly successful providing employment to tens of thousands of villagers and uplifting them. Villagers are now earning a daily wage of up to 120 rupees a day. Tourism industry is flourishing due to active involvement of the state government.

Now, the important and unanswered question remains whether the script of the movie, which seems to have an undesirable end, could be changed? Well, the remote is with us and it depends whether we press the panic button or go to the menu and start rebuilding phase. Tough and rational decisions seem to be the need of the hour.

Appeasement politics have to be kept on the sidelines for a little while; for the reason that it is not an individual or a political party, which is at war with the demons of instability; rather we can counter them only if we synergize and fight it out as a unit. If we Indians can drive out a disease like polio completely from across the length and breadth of the country; an effort that was applauded by WHO and others, we certainly can overcome this temporary phase of stagnation and march towards the path of glory!